Salerno: City ‘in financial peril’

At the end of a contentious seven-hour impasse hearing Aug. 31, the Coral Gables city commission made the police an offer: Contribute five percent to the pension or take a five percent pay cut. The proposal, coupled with an overtime cap of 300 hours as opposed to 600 and other assorted cost reductions, will save the city more than $1.5 million, less than half the amount in concessions it sought. If police union members approve the contract covering the period between last October and next month, it will cost police officers on average $160 per week.

The sultry summer day started out with a well-organized protest on the steps of city hall by more than 150 police officers and sympathetic members of the Teamsters, which represents the city’s general employees. Equipped with bull horns, the demonstrators chanted, blew whistles as passing cars honked as a sign of support. Former Mayor Dorothy Thomson, who later spoke on the police’s behalf, said a demonstration of this kind was without precedent. “Never was there a protest while I was in office,” said Thomson, the mother of a police officer. Then things really heated up as the protestor moved inside for the impasse hearing.

In a commission chambers packed with union members that also spilled out into the halls and down the stairwell, the police made their impassioned case that they were being punished for city hall mismanagement.

“We are here today because of other people’s mistakes and mismanagement,” Fraternal Order of Police (FOP) Lodge 7 President John Baublitz. “Being upfront and honest about mismanagement over the years obviously did not do us any good.”

Some of the most blistering and pointed criticism of the administration came from one of the most decorated police officers in the city’s history who spoke on the FOP’s behalf. Jeff Vance who retired in 2001 said, “How are supposed to feel when corruption and scandal have seeped into nearly every part of City Hall and little or no action is taken other than make huge payouts from the city coffers? A perfect example of the Finance Director (Don Nelson), Time after time mistakes are made, overpayments, shortfalls on the budget and computer systems that don’t work,” said Vance. “The Narcotics Unit of the city (police department) handles millions and millions of dollars. It was counted, deposited, put in evidence, wire transfers and seized, all without scandal. Had we made the mistakes the Finance Department does, we would all be in prison.”

The police also asked esteemed civic activist Roxcy Bolton to speak on their behalf. After asking Mayor Don Slesnick to “rethink” his attitude regarding the police, “our first line of defense,” Bolton said she would “…pray for this city commission to do right by the police.”

The city based its case for the imposition of $3.3 million in cost reductions on the arguments that police were already well compensated and that the city was unable to afford anything else. Jim Crosland, the city’s lead labor attorney, disclosed that Coral Gables was “obviously in a precarious financial condition” and the “employee paychecks are now being funded out of what reserves we’ve got.”

Crosland likened the city to a cash-poor family that “…lives in a great house but can’t afford groceries.”

The city’s attorney said Coral Gables police officers were relatively well-compensated in comparison to peers in the region, citing overtime and add-ons as generous pay enhancements.

But it was the city pension attorney and actuary’s sobering reports on the employee retirement fund that troubled elected officials the most. Attorney Jamie Lynn reminded the commission the city’s projected 2009 pension contribution of $24.3 million is approximately 500 percent more than it was in 2000 and called the current level of pension contributions “simply not sustainable.” He added that since 2005, the contribution has represented more than 45 percent of payroll costs.

Lynn silenced the room with his disclosure that the fund’s benefit obligations currently exceed its assets by $168.5 million. In 2001, the deficit was $15.1 million. “Even in the good years, you (the city) had (actuarial) losses in the pension plan,” explained Lynn. “Pension contributions are only going to get worse.”

City Actuary Mike Tierney offered further insight into the pension’s woes. While Tierney said investment losses incurred by the city’s fund in 2008 were just slightly than averages for public pension plans, the assumed rate of return was 7.75 percent. This means in order for the plan to recoup the loss, the actual return will have to exceed 12.44 percent over the next six years. “In the absence of that, we are going to have to pay up,” said Tierney. “And unfortunately…in the experience in the current year just about to end is that there are significantly more losses. Rough guestimates it will another $40 million. So in the last two years we can be looking at a market shortfall over $100 million.”

Tierney explained that the fund also incurred significant losses due to raises larger in actuality than projected. He said that over the last 10 years, raises averaged 37 percent higher than anticipated. In 2008, the pension lost $14 million, more than its market losses, due to raises greater than assumed.

The city actuary told commissioners the fund not met its assumptions for eight of the last ten years so therefore, "...future contributions will be much higher than the 50 percent of payroll you’re currently looking at." Tierney then added, “Hate to be the bearer of bad news, but unfortunately you’re likely not to have seen anything yet in terms of term of a big contribution number.”

As a percentage of payroll, Tierney reported that Coral Gables’ pension contribution is double that of the state average (23 percent). “We’re not even close,” he said.

Coral Gables City Manager Pat Salerno cited the pension crisis as rationale for his tough stance in his first go-round of Coral Gables labor negotiations.

“As long as the (city’s) pension cost is where it’s at or anywhere near it, the city will not be in a position to give you wage increases,” a poised Salerno told the police officers assembled in the commission chambers. “Eventually the pension costs are going to undermine the financial pinning of this city. We’re there now.”

Salerno then offered a stark assessment of the city’s current financial state. “We’d like to be give wage increases. I would love to be able to offer residents greater services. Professionally I can’t recommend it. Not when the city is in financial peril.”

Salerno faulted the pension for the budget crisis the city now confronts, calling the system “uncontrolled”.

“People are retiring with pensions in some cases 54 percent more than what they were earning when they were here. Some changes have to be made. That’s the situation we’re in.”

Commissioner Chip Wither agreed with manager’s concerns. “The pension has become the big black cloud,” said the elder commissioner. “No one ever anticipated that people would be retiring with 125-140 percent of their salary. My focus today is on pension reform.”

In a rare admission, Mayor Don Slesnick conceded the commission had neglected trying to resolve the retirement fund conundrum far too long.

”Our biggest mistake was not reforming the pension,” said Slesnick. The mayor then recited several examples of waste and mismanagement lobbed against the city during the hearing but said, “If you add up all those things… all that pales, pales in the light of the $25 million (the city contributes annually to the pension).”